FNB results show double digit growth as digital strategy takes off

By Roxanne Henderson

(Bloomberg) – You wouldn’t say South Africa was in the grips of a recession by looking at the retail-banking unit of FirstRand Ltd., the continent’s largest lender by market value.

First National Bank, which accounts for more than half of FirstRand’s profit, is outshining its Johannesburg-based peers by adding customers and deposits, extending more credit to its top clients and boosting transactions through its mobile-phone banking app. A decline in credit losses as a percentage of total loans also helped to lift adjusted earnings at FNB by 16 percent in the 12 months through June.

Contrast that to what is happening in Africa’s most industrialised economy, which shrank an annualised 2.6 percent in the first quarter and 0.7 percent in the second to tip into its first recession in nine years. Since coming into office in February, President Cyril Ramaphosa has tried to restore investor confidence battered by almost nine years of misrule by his predecessor, while contending with a global trade war that is souring sentiment toward emerging markets.

A 4 percent increase in FNB’s customer numbers to 8.2 million “fired” up the business, which managed to improve the cross-selling of products from insurance and wealth management to mortgages and credit-card offerings, Chief Executive Officer Alan Pullinger said by phone. Transactions done over FNB’s app surged 65 percent over the year, contributing to a 10 percent increase in the group’s fee and commission income.

‘Soft market’

“It’s difficult to switch customers from other banks and there aren’t a lot of customers entering the banking system,” the CEO said. “In a very soft market” that “kind of customer growth is a very impressive result.”

While the difficult macroeconomic environment in South Africa is expected to continue, FirstRand’s businesses have built “good momentum” which makes them well positioned for any upswing, Pullinger said.

The performance suggests that the company was “gaining huge market share from other banks” in the retail segment, said Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town.

FNB, which also has units in Namibia, Botswana and Swaziland, had a better second half on the back of positive momentum from Ramaphosa’s ascendancy to the presidency after former President Jacob Zuma’s ouster.

Adjusted earnings jumped 21 percent to R7.72 billion ($503 million) in the six months through June, compared with the year-earlier period, according to data compiled by Bloomberg.

Shares gain

FNB isn’t the only bank bucking South Africa’s economic headwinds. The personal and business banking division of Standard Bank Group Ltd., the continent’s largest lender by assets, increased first-half earnings before one-time items by 8 percent to R6.6 billion. Absa Group Ltd.’s retail and business banking unit posted a 4 percent improvement in profit to R4.2 billion in the six months through June, while Nedbank Group Ltd.’s consumer lender reported a 1.5 percent rise in first-half earnings to R2.6 billion.

Shares in FirstRand rose 3.7 percent, outpacing average gains in the six-member FTSE/JSE Africa Banks Index, which was up 2.9 percent by 2:06pm in Johannesburg.

“They will have to invest in small businesses or seedlings to continue growing faster than GDP,” said Adrian Cloete, a portfolio manager at PSG Wealth, adding that insurance is one avenue of potential expansion for FNB. “If we have more weak macroeconomic growth, it will bring all earnings-growth rates down at the banks.”

FNB media statement

FNB produced excellent results against the backdrop of a tough economy, building on its consistent strategy of cross-sell of products and services into its existing customer base. New to bank sales reached record levels in our key channels with customer numbers now above 8.15 million.

FNB, Jacques Celliers
FNB CEO Jacques Celliers

“Our digital journey, particularly FNB App, usage again experienced excellent growth with financial transactions up 65%. We were also delighted with progress in digital fulfilment where significant strides were made on both onboarding and leveraging cross-sell opportunities, and the bank will continue to invest in future technology projects,” says Jacques Celliers, FNB CEO.

The cash migration strategy continues with activities moving from branch to ADT and cash centre to SmartBox technology. The branch capacity has been successfully leveraged producing record sales for the period.

The FNB Digital strategy has seen:

  • App volumes climb 65%
  • Digital loan origination initiated
  • Lifestyle orientated solutions (branded NAV), now available on App
  • Invest, Connect and Insure products are all integrated onto the platform

Contributions from Retail and Commercial banking saw domestic profitability lift by 16% while the effort in creating scale in Insurance and Investment offerings show potential for growth opportunities.

The Retail segment profits climbed by 18% with Commercial also up a healthy 12%. Retail saw excellent contributions from all client facing businesses with card, loans, residential mortgages, transactional and cash investments contributing double digit growth. Lending businesses benefitted from targeted advances growth and an improved ability to deliver their products through our digital platform. Advances growth was largely contained to the existing client base and we expect this trend to continue into the new year. Bad debt performance was again a key focus area. Excellent collections and targeted advances growth resulted in impairments drifting lower in the domestic portfolio.

Read also: Well-known market commentator Wayne McCurrie shifts gears to FNB Wealth and Investments

Commercial growth was buoyed by gains made in the key transactional business coupled with advances growth across targeted portfolios, particularly within property and agriculture.

Deposit growth remained robust and FNB is now the leading retail deposit taker in the domestic market. This growth has come from both product and channel innovation which facilitates ease of use supported by compelling rates. Commercial deposits were again up 7% which is an excellent result given the existing high base.

FNB transactional volumes in debit card and credit card remained industry leading with total transaction volumes up 10% in the period.

FNB Rest of Africa profits were lower in the face of tough macro-economic conditions.

Our client centric approach has produced dividends within FNB across our key segments in both Retail and Business banking environments. Client product take-up, has improved to 2.97 from 2.83 at June 2017.

Insurance activities again produced excellent revenue growth with the policy numbers reaching 3.7 million and recurring premiums (APE) growing 35%.

In terms of our investment in both community and small business, we were delighted to see eWallet send values grow to over R21 billion with almost 900,000 monthly senders using the facility. On the small business front, unsecured facilities to the SME’s grew to R17bn up 13% during the period.

“We are grateful to our stakeholders, particularly our staff who have again delivered on our helpfulness promise. The year ahead will see increased competition and we will further leverage our digital and client centric strategies to enable class leading growth,” concludes Mr Celliers.

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